When does this come up / why would my customer pay my vendor?
More often than I would expect, I am asked about how to account in QuickBooks for the situation where a company’s customer pays its vendor directly. Most often this is because the vendor will not work with that company otherwise, and usually this is due to issues of payment in the past. So the vendor in order to conduct business going forward will require a company’s customer to pay them directly. Regardless of the reason it comes up and we need to know how to handle this properly in QuickBooks.
The question then becomes, how do I record the payment from my customer to my vendor in QuickBooks?
What NOT to do
Normally I would record a customer’s payment, deposit the money and then pay my bill to my vendor. That’s not going to work in this case. You could enter all of that info, and record the deposit and bill payment so that it washes through your checking account, but I am not even going to show you how to do that because it just isn’t clean. It’s messy / sloppy bookkeeping and if someone were reviewing your books to determine whether they wanted to provide financing and they saw this kind of thing it could have an adverse affect on your chances of getting funding because it ruins the integrity of your books. Simply put, there should not be a deposit recorded in your bank account unless money was actually deposited into your bank account and there should not be a payment recorded in your books unless you’ve actually made one.
The right way
The very simple and direct way to deal with this is through a journal entry, reducing the customer’s receivable and reducing the vendor’s payable.
The problem
QuickBooks will not let you post to more than 1 accounts receivable or accounts payable account in the same transaction.
The solution
You have to break up your entry into two separate entries, and use a clearing account. Clearing accounts must ALWAYS zero out. The video will show you exactly what this looks like in terms of how to record a payment that was made directly from your customer to your vendor in QuickBooks.
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This is almost the scenario that I have. Here is what we do on certain large dollar orders and need to know how to account correctly.
1.) We invoice the customer and the payment address is our vendor’s lock box.
2.) the Vendor deposits the customer’s check.
3.) the Vendor then mails us a check minus the amount we owe them for the product.
We have an accountant who gets confused each time we have one of these orders. She says she fixes it. I need to know how as I do not want to wait every quarter when she comes in to have the deposits recorded so I am now doing them. Please help.
Hi! Sorry this took a few days to get to
Seems to me that you post the payment in it’s entire amount (as if the check you received was for the full amount of the invoice) and let it go into undeposited funds. Then when you record the deposit you add a line item into the deposit posting to accounts payable (enter the vendor name in the received from column to associate the transaction with that vendor) and the amount is negative, reducing the funds received in the deposit to the correct amount. Then go into “Pay Bills” and there will be a credit available to be applied to that vendor’s bill so you can show it as paid.
My vendor billed my customer, my customer paid me, & I paid my vendor.
I entered the payment in my regular bank account received as normal and the customers a/c showed a negative balance
I entered the payment made vide a cheque (with Accounts payable) from my regula bank account to my vendor
I entered a journal entry to transfer the excess Accounts Receivable balance to a clearing account (bank – named 3rd party payments). i.e. Credit 3rd party payments, Debit Accounts Receivable while mentioning the name of the customer in both the rows under Name column.
I entered a journal entry to transfer the effects to Accounts Payable by Debiting the 3rd party payments and crediting Accounts payable while mentioning the name of the vendor in both rows under the Name column.
It looks clean on the surface. However, please let me know if I got it right.
Regards,
Gaurav Bhatnagar